Transaction card issuers, such as issuers of charge and credit cards, issue their transaction cards to customers who wish to use the card as payment for goods or services with a merchant. When a card is issued, an account is created through which all of the card transactions are reconciled.
In order for a customer to use a transaction card at a merchant, the merchant must agree to accept the card. Therefore the merchant must have a relationship with the transaction card issuer as well. As part of the relationship between the card issuers and the merchant, the merchant will have an account with the transaction card issuer.
Generally, when a merchant accepts a transaction card as payment for a customer's purchase, the transaction card issuer debits the customer's account for the amount of the purchase and credits the merchant's account for a discounted amount. In other circumstances, such as when a customer returns an item to a merchant, the merchant's account will be debited by the transaction card issuer. If a merchant's account goes into a debit balance, the transaction card issuer may end up taking a “write-off” of the account, thereby losing money through credit loss.
Methods for dealing with such merchant debit balance problems have been reactive, fraud-focused and manually monitored. More recently, automated methods have been used to model or predict which merchants are likely to go into debit balance. However, these automated methods have applied a single model to all merchants. In addition, these automated methods do not provide a means for identifying merchants that are likely to be ongoing concerns with whom the transaction card issuer can recoup the debit balance.
A need exists, therefore, for automated methods to reduce a transaction card issuer's write-offs due to credit loss created by merchants that accounts for differences between merchants in various business segments. In addition, an automated system is needed that identifies merchants that have a workable debit balance, i.e., not only merchants that are likely to go into a debit balance, but those that will likely continue to submit charges to the transaction card issuer, so that the transaction card issuer has an opportunity to recoup the debit balance.